Technically, the rebound termed to be materialized after the rally on 2nd Sep 08 was totally broken down on 4th Sep 08 when STI gap down and broke the support at 2,700. From the ADX chart, the DI+ was close to cut up the DI- which could signal a market rebound after 2nd Sep 08 but now the DI+ and DI- diverged even more. The ADX line has not hit 40 level mark hence indicating further downside is of moderate strength. MACD line diverged since the gap down on 4th Sep 08 and MACD histogram now is in the negative region. RSI though still quite resilient at the 30% level. Stochastic signal cut into the oversold region and no sign of u-turn and a possible rebound from oversold in perhaps the next 1 or 2 trading days. If an oversold rebound exists, it would probably just move up to cover the gap at 2,628 level. The immediate support for STI would be at 2,550 and if that fails to hold, the next stronger support would be around the 2,350 level; the mid 2006 level whereby the market bottomed up for the last leg of the bull run.
At current level of STI, valuation of blue chips are looking cheap and for investors with a time frame of 3 to 5 years of holding power could consider slowly accumulate. Look at stock from fundamental point of view and decide on various entry points. KepCorp, SembMar, Wilmar, Noble, Olam, Capitaland, CityDev and SingTel are few of the blue chips that their valuations are getting attractive. For traders with a contra or short time frame and if the saying of the funds cashing out are true, it would probably take another 1 or 2 more days for them to fully cash out and hence in short-term, market will still be facing selling pressure but to a lesser extend. To exercise buy on dip and sell into strength strategy will have to time entry correctly. An useful indicator would be monitoring the volume of the counters and their respective price range for the day.
Currently, the FTSE STI together with other 19 indices are under review and on 11th Sep 08 after market close, the result of the review will be announced. Any new implementations will be carried out after market close on 19th Sep 08. Investors who are vested in Yangzijiang might want to take precautious measure. The stock price has fallen quite a lot and with the daily share buy back, the public float size is much smaller now than when it was included as one of STI component early this year. As FTSE STI component stocks are based on market capitalisation, there is a possibility that Yangzijang might be kicked out of the 30 component stocks. If that is so, the share price would be facing more downside to come.
